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The Price System ( Markets)

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The Price System ( Markets). Economics Unit 4, Lesson 1. Potential Buyers. Potential Sellers. Markets The interaction of buyers and sellers determines the price and quantity of most goods in a market system. - PowerPoint PPT Presentation
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The Price System (Markets) ©2012, TESCCC Economics Unit 4, Lesson 1
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Page 1: The Price System  ( Markets)

The Price System (Markets)

©2012, TESCCC

Economics Unit 4, Lesson 1

Page 2: The Price System  ( Markets)

Potential Buyers Potential Sellers

Markets

The interaction of buyers and sellers determines the price and quantity of most goods in a market system.

©2012, TESCCC

Page 3: The Price System  ( Markets)

Buyers and sellers have opposite goals.

Buyers want the lowest price.Sellers want the highest price.

©2012, TESCCC

Page 4: The Price System  ( Markets)

MarketsDraw Supply & Demand

Demand Schedule

$ QD

10.00 60

20.00 40

30.00 20

Supply Schedule

$ QS

10.00 20

20.00 40

30.00 60

©2012, TESCCC

Page 5: The Price System  ( Markets)

Market

D

S$

EP 20

40EQ

Q

30

20 60

10

©2012, TESCCC

Page 6: The Price System  ( Markets)

With supply and demand both on graph, we now have a

market.

Market equilibrium – where quantity demanded and quantity

supplied are equal

©2012, TESCCC

Page 7: The Price System  ( Markets)

Based on 2 Assumptions

1. Everything in market has a price.

2. Price is best measure to answer the three basic economic

questions.

©2012, TESCCC

Page 8: The Price System  ( Markets)

Prices act as signals.

Signals to adjust

– Demand

– Supply

©2012, TESCCC

Page 9: The Price System  ( Markets)

Disequilibrium

QS = QD

This creates a shortage or a surplus.

©2012, TESCCC

Page 10: The Price System  ( Markets)

Surplus

• A price above equilibrium creates a surplus.

• A surplus is when QS is greater than QD.

©2012, TESCCC

Page 11: The Price System  ( Markets)

SurplusExcess Supply

QS > QD

D

SP

EP 20

40EQ

QQD QS

30

©2012, TESCCC

Page 12: The Price System  ( Markets)

Shortage

• A price below equilibrium created a shortage.

• Shortage is when QD is greater than QS.

©2012, TESCCC

Page 13: The Price System  ( Markets)

Shortage Excess Demand

QD > QS

D

S$

EP20

40EQ Q

QS QD

10

©2012, TESCCC

Page 14: The Price System  ( Markets)

Objectives

1. Identify the determinant that causes a change in equilibrium price.

2. Construct a market, and graph a change in supply and demand with new equilibrium.

©2012, TESCCC

Page 15: The Price System  ( Markets)

What does it take to make a market?

• Buyer = demand

• Seller= Supply

Draw a market and label

• P

• Q

• S & D

• EP & EQ

©2012, TESCCC

Page 16: The Price System  ( Markets)

Product: Toothpaste

S

D

$

EQ

EEP

Q©2012, TESCCC

Page 17: The Price System  ( Markets)

Show what would happen if Crest has a very successful ad campaign.

Change in D?or

Change in S?

©2012, TESCCC

Page 18: The Price System  ( Markets)

Product: Toothpaste

S

D

1

$

Q

E1EP

1

EQ

1

©2012, TESCCC

Page 19: The Price System  ( Markets)

Product: Toothpaste

S

D

1

$

Q

E1

E2

D

2

EP

2EP

1

EQ

2

EQ

1

©2012, TESCCC

Page 20: The Price System  ( Markets)

What happened to EP? Increased

To EQ?Increased

So we can generalize and say if…

D EP EQ

©2012, TESCCC

Page 21: The Price System  ( Markets)

Show what would happen if the price of seaweed goes up.

Change in D?or

Change in S?

©2012, TESCCC

Page 22: The Price System  ( Markets)

Product: Toothpaste

S

D

1

$

Q

E1EP

1

EQ

1

©2012, TESCCC

Page 23: The Price System  ( Markets)

Product: Toothpaste

S1

D

1

$

Q

E1EP

1

EQ

1

S2

E2EP

2

EQ

2

©2012, TESCCC

Page 24: The Price System  ( Markets)

This was caused by a change in the cost of inputs. Seaweed is a major ingredient of toothpaste.

©2012, TESCCC

Page 25: The Price System  ( Markets)

What happened to EP? Increased

To EQ?Decreased

So we can generalize and say if…

S

EP

EQ ©2012, TESCCC

Page 26: The Price System  ( Markets)

Show what would happen if a new machine can harvest seaweed faster

and cheaper.

Change in D?or

Change in S?

©2012, TESCCC

Page 27: The Price System  ( Markets)

Product: Toothpaste

S

D

1

$

Q

E1EP

1

EQ

1

©2012, TESCCC

Page 28: The Price System  ( Markets)

Product: Toothpaste

S1

D

1

$

Q

E1EP

1

EQ1 EQ2

S2

EP2

©2012, TESCCC

Page 29: The Price System  ( Markets)

What happened to EP?Decreased

What happened to EQ?Increased

So we can generalize and say if…

S EP EQ ©2012, TESCCC

Page 30: The Price System  ( Markets)

Show what would happen if the Surgeon General

announced that toothpaste was harmful to your heart.

Change in Demand or

Change in Supply?

©2012, TESCCC

Page 31: The Price System  ( Markets)

Product: Toothpaste

S1

D

1

$

Q

E1

©2012, TESCCC

Page 32: The Price System  ( Markets)

Product: Toothpaste

S

D

1

$

Q

E1

EP2

EQ2

D2

EP1

EQ

1

©2012, TESCCC

Page 33: The Price System  ( Markets)

What happened to EP?

What happened to EQ?

©2012, TESCCC

Page 34: The Price System  ( Markets)

Both decreased.

We can generalize and say if…

D EP EQ

©2012, TESCCC


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